Starting an individual retirement account can seem like a daunting task; however, if you have money to invest and want to save for retirement, it is a viable option. Understanding the difference in the three ways to start an IRA can help you choose the option that is best for you.
Use a Bank
According to GettingRichSlowly.com, using a bank to open an IRA is a sound choice if you are having trouble deciding where you want your money to be invested. It is also a good place to start if you are going to open with a small amount of money, as many IRAs can be opened with an initial investment of as little as $100.
Discuss the options with your bank officer, and choose whether you want to invest in a money market account, a CD or both. It’s a good idea to shop the fees around at different banks before opening the account to determine the best rate for your money.
A mutual fund company is the recommended choice for the beginner, according to GettingRichSlowly.com. The simple structure of this type of IRA makes it easy to understand, and you are not expected to know how to choose stocks for investment. You invest your money in the mutual fund, and the company professionals choose where the money is divided and invested. Because you are trusting others to make these choices for you, it is a good idea to research the company’s history and talk to a few people who use that company to find out whether they have been satisfied with the services. Many mutual fund companies require a minimum $1,000 investment to participate.
Brokerage firms are the preferred choice for those with investment experience under their belts. A brokerage firm IRA usually allows you to pick and choose from thousands of mutual funds where you can invest your money. You can also opt to use a mix of your own–carefully chosen–securities portfolio. Purchasing individual securities can be fun and give you more control over your IRA; however, you will also be required to pay a commission on trades. For mutual funds, choosing a no-load option saves you the commissions that would be on top of the underlying cost of the fund itself.